Hong Kong tensions rattle world stock markets, oil tumbles

Workers celebrate the during closing bell, as they prepare for the return to trading, on the floor at the New York Stock Exchange (NYSE) in New York on Friday. - Reuters

Stocks slide in Asia, trade flat in Europe and Wall Street; oil prices tumble more than 5% before paring losses

Oil prices tumbled and global equity markets fell on Friday as China's move to impose a new security law on Hong Kong further strained US-China relations and clouded economic recovery prospects.

China also dropped its annual growth target for the first time, adding to uncertainty about the fallout from the Covid-19 pandemic, boosting safe-haven investments such as US Treasuries and the dollar.

China said it would impose new national security legislation on Hong Kong, leading President Donald Trump to warn that Washington would react "very strongly" against any attempt to gain more control over the former British colony.

Emerging market shares slid -2.72 per cent. Stocks in Europe closed mostly flat and on Wall Street finished mixed as investors prepared for a long weekend in the United States, the UK and elsewhere.

After trading lower most of the session, Wall Street trended upward in late trading, with the S&P and the Dow managing to finish higher.

"The market just keeps battling higher, it just wants to go higher," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "It's anticipating improvement and we've seen all the bad news."

Tensions between the world's two largest economies have risen in recent weeks, with Washington ramping up criticism of China over the origins of the coronavirus pandemic, raising fears the rhetoric could crimp economic growth.

The US Commerce Department said late in the session that it is adding 33 Chinese companies and other institutions to a blacklist for human rights violations and to address US national security concerns. The resurgent US-China standoff weighed on oil prices.

"You have these doubts over China that is triggering this sell-off in oil, and it's going to gain steam. If oil sells off, it's hard to have a strong stock market," said Ed Moya, senior market analyst at OANDA in New York.

Of major asset classes, crude oil has rebounded the most off the year's lows on hopes world economies will soon recover from coronavirus-induced business shutdowns, he said, adding that he believed oil's rally was overdone.

"There's just too much uncertainty, and that's going to likely keep on weighing on risk appetite," Moya said.

MSCI's all-country world stock index shed 0.40 per cent, but the pan-European STOXX 600 index closed down just 0.3 per cent.

On Wall Street, the Dow Jones Industrial Average fell 8.96 points, or 0.04 per cent, to 24,465.16. The S&P 500 gained 6.94 points, or 0.24 per cent, to 2,955.45, and the Nasdaq Composite added 39.71 points, or 0.43 per cent, to 9,324.59.

Analysts said extensive central bank stimulus continues to underpin sentiment and buoy equity markets. Japan's central bank unveiled a lending program to channel nearly $280 billion to small businesses hit by the coronavirus. India slashed rates for a second time this year and the European Central Bank, in the minutes from its last meeting, said it was ready to expand emergency bond purchases as early as June.

US crude fell 67 cents to settle at $33.25 a barrel, paring about half earlier losses of more than 5per cent. Brent settled at $35.13, down 93 cents on the day. The dollar index rose 0.331 per cent, with the euro down 0.42 per cent to $1.0903. The Japanese yen strengthened 0.01per cent versus the greenback at 107.62 per dollar.

Benchmark 10-year US Treasury yields fell 0.2 basis points to 0.6574 per cent.Spot gold added 0.5 per cent and US gold futures settled up 0.8 per cent at $1,735.50 an ounce. - Reuters